Paraline Chief: Soft Insurance Market Is ‘Death by a Thousand Scratches’

Jack Graham, chief executive officer of the newly launched Paraline Group, a Lloyd's insurer and reinsurer, admits that today's soft market is not a great time to enter the market with a new company.

"We're in a really tough market. It feels a lot like the soft markets of 1982 and 1999. We have this continual erosion of rates, not caused by any one significant event. It's death by a thousand scratches," Graham said.

However, now is the time to launch the new company, which is domiciled in Bermuda. The company will expand by writing additional lines of business from Lloyd's, but not until the time is right, he said.

"We have no intention of stepping into the marketplace and adding fuel to an already hot and competitive market," Graham said. "Rather, what we are doing is thinking strategically about diversifying our business. It's a patience game at this time. We will build the capabilities, and wait until market opportunities exist. When they do, at that time, we will jump into the marketplace."

He said if the group were to wait until after a major event to launch Paraline, it would be too late.

"You can't bring up the infrastructure to compete fast enough. The time to create Paraline is now, even though the marketplace is soft and competitive. We can build capabilities. It's an investment in the future," Graham said.

Earlier this month, executives of ICAT Holdings LLC, which specializes in commercial property insurance for catastrophe-exposed areas in the United States, launched Paraline Group Ltd., a new Bermuda Lloyd's insurance and reinsurance company (BestWire, Oct. 21, 2010).

Paraline has financial backing from private investors, including Wand Partners Inc. and Elliott Management Corp. The group's first act was to receive necessary approvals from Lloyd's and the Bermuda Monetary Authority and acquire ICAT from Vulcan Inc., a private investor.

ICAT began as a managing general agency underwriting property/catastrophe insurance products in the United States in 1998. The company focused on the small and middle commercial market, but added some homeowners hurricane business in Hawaii in 2006, said Graham, ICAT chairman and CEO.

After the devastating 2004-2005 hurricane seasons, ICAT evolved into a full risk-bearing company by founding Lloyd's Syndicate 4242, which was launched Jan. 1, 2007. Unlike most Lloyd's operations, ICAT handles its risk management, underwriting and claims from Boulder, Colo., not London. Chaucer provides third-party syndicate management services.

While ICAT has had a box in the underwriting room at Lloyd's since 2007, "Our view has been let's crawl. Then walk, and then we can jog," Graham said. "We are now at the point to think about diversifying and growing our business and becoming something more than a property/casualty insurer in the United States. We are an emerging Lloyd's business."

In addition to underwriting on behalf of ICAT's Lloyd's Syndicate 4242, ICAT Managers underwrites on behalf of other Lloyd's syndicates and other insurance and reinsurance companies.

Graham has 30 years of experience in the reinsurance and insurance industries. Before founding International Catastrophe Insurance Managers LLC (ICAT) in July 1998, Graham spent 21 years with E. W. Blanch Co. -- which later merged with Benfield, which is now part of Aon Benfield -- as a reinsurance intermediary.

Graham was E. W. Blanch Co.'s project leader for the placement of the California Earthquake Authority's$3.5 billion reinsurance program, the largest reinsurance placement in the history of the market. He co-wrote the legislation that created the Hawaii Hurricane Relief Fund, according to the ICAT website.

ICAT's Chief Underwriting Officer Gregory E. Butler, also the active underwriter for ICAT's Lloyd's Syndicate 4242, served as CEO of the California Earthquake Authority before joining the company, according its website.

ICAT's Colorado-based claims unit handles the third-party claims from the Mississippi Windstorm Underwriting Association.

Lloyd's currently has a Best's Financial Strength Rating of A (Excellent).

(By Meg Green, senior associate editor, BestWeek: Meg.Green@ambest.com)